Understanding Different Types of Bonds

Despite your business’s best efforts, there may be times when you’re unable to operate at your best. These unfortunate situations may have ramifications beyond your own financial interests and growth, as other parties, such as clients and customers, may depend on you and subsequently incur losses. Understanding and retaining the right types of bonds can make all the difference in these situations, as these tools can limit other parties’ losses and protect your business from consequences.

What Are Bonds?

Bonds often function as critical loss control measures. These products can protect the financial interests of your company and those of your clients and customers. Securing appropriate bonds can establish a means for other parties with whom you enter into business arrangements to recoup monetary losses for which you’re to blame without the need for potentially costly and lengthy legal battles.

Which Bonds Are Right for My Business?

Your business’s bond-related needs will likely be dictated by the industry in which you operate and your clients’ preferences. Many companies, such as auto dealerships and mortgage brokers, may be required to purchase bonds tailored specifically for their business operations. In the United States, many of the most commonly retained types of bonds can be classified as one of the following:

• Surety bonds establish legal agreements between your business, its client and an insurance company. If you’re unable to provide promised services to your client, these bonds can compensate them for losses without the need for lawsuits. Common types of surety bonds include the following:
  • Contract bonds
  • Commercial bonds
  • License and permit bonds
  • Bid bonds
  • Performance bonds
  • Maintenance bonds
• Fidelity bonds are often needed by businesses with access to other parties’ property or assets, including physical premises and sensitive data. These bonds can limit losses if an employee or contract worker commits a dishonest, criminal or fraudulent act that harms a client or customer. Fidelity bonds may often come in the following forms:
  • Business services bonds (also known as janitorial service bonds)
  • Employee dishonesty bonds
  • ERISA bonds

We’re Here to Help

Contact 1st Choice Insurance in Fairfield, OH, today to learn more about various types of bonds and ensure your business and its clients are protected by appropriate loss control measures.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.